Demand Seen Exceeding Supply for SBA Program

WASHINGTON — A Small Business Administration loan program expected to be up and running by mid-June could quickly run out of funds.

The SBA is planning to use money from the recently enacted stimulus package to fund a bridge loan program to provide short-term loans to struggling small businesses that are still considered "viable."

But the allocation would allow for only about $350 million of loans to be made before the program runs out of money. Observers said lenders that want to participate in the program, in which loans would be 100% government-guaranteed and the government would pay the interest rate, should start gearing up now.

The program, America's Recovery Capital, was announced Monday. It would offer small-business owners loans of up to $35,000 to pay off other debts over a six-month period. After the six months, businesses would have no repayment responsibilities for a year. Then they would have up to five years to repay the loan with no interest. Lenders are to make the Arc loans and then collect the interest from the government.

"I think there's going to be a lot of demand for the program," said Tony Wilkinson, the president of the National Association of Government Guaranteed Lenders. "The issue we are going to have is probably more demand than funds available. … My guess is there is a significant number of viable small businesses that are experiencing immediate hardship."

SBA Administrator Karen Mills, in a speech Monday morning to a National Small Business Week audience that included bankers and small-business owners, said that by June 8 the agency would release guidelines for lenders to participate in the Arc program, and that it would begin accepting applications for the loans on June 15. She called the program "a bridge over troubled waters" and said during a press conference later that the funds would go fast.

Mills said the loans would be made outside of existing SBA programs.

"Lenders who have a non-SBA loan have to become an SBA lender" to participate in the program, she said in the press conference. "But there's sort of a process by which the borrower, who thinks this might be good, goes to their lender, the lender is either already qualified or needs to become qualified, and then we hope to be able to have a very short processing time."

The program would lend money to businesses that have a "track record of success" but are "showing some difficulty," Mills said. "That could be a sales decline," she explained. "They also have to demonstrate a plan, a business plan, a projection — of how they are going to be able to come through the six months of relief and again be viable in paying their bills."

The SBA did not release details of the eligibility requirements for borrowers. Nor did it reveal the interest rate lenders could charge the government for the program.

Wilkinson's advice to lenders hoping to participate was to waste no time finding out how to qualify.

"I don't know all the parameters, but I would urge lenders to learn the program quickly," he said. He speculated that the program could scarcely sustain itself for more than three months.

Another thing the SBA did not announce was whether lenders would be able to sell their Arc loans, Wilkinson said.

"Chances are because of the short-term nature, it's probably something that won't be sold," he said.

Sen. Mary Landrieu, D-La., who chairs the Senate Small Business Committee, said during the press conference that her panel was working with the SBA to recruit more banks for all SBA programs.

"We understand there may be as many as 50% of the banks nationally that are not working with the SBA, and we're going to find out a little bit more about why not, and if it's something on our side, we want to correct it," Landrieu said.